cds

5 high-yielding, but risky CDs

Index CDs can be complex
Next
5 of 7
Back

CDs with rates linked to an index such as the price of gold, currencies or the stock market seem like good bets for investors who want higher returns, but look before you leap.

These are complex investments. If the index goes up, you don't get the full return. Your CD typically has a ceiling that limits what you can earn. If the index falls, you get your investment back minus any interest and possible investment earnings.

"There's no free lunch" says Herbert Hopwood, president of Hopwood Financial in Great Falls, Va. "Brokers are bringing out CDs tied to various markets. But you need a Ph.D. to understand them."

Though an index CD principal is insured by the FDIC, they tend to have high fees. As a result, you may be giving up your potential return.

If you're angling for higher returns, opt for a low-cost, exchange-traded fund, or ETF, that mirrors a benchmark index such as the Standard & Poor's 500 or a diversified mutual fund that's invested in a wide variety of stocks. "You'll come out light-years ahead," says Cummings.


 

 

advertisement

Show Bankrate's community sharing policy
          Connect with us
Product Rate Change Last week
1 Year CD 0.90%  0.02 0.88%
2 Year CD 1.03%  0.00 1.03%
5 Year CD 1.59%  0.01 1.60%
 
View Rates in your area Search
advertisement
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Partner Center
advertisement

Connect with us